Page 87 - Understanding Economics for Class 10

17. In India, who is authorised to issue notes and currency?
Ans. In India, ‘Reserve Bank of India’ issues currency notes on behalf of the central government.

Goyal Brothers Prakashan
18. What is a ‘cheque’?
Ans. A cheque is a paper, instructing the bank to pay a specific amount from the person’s account
to the person on whose name the cheque has been issued.

19. What is the main source of income of the banks, if they forward the depositor’s money to
the lender?
Ans. Banks charge a higher rate of interest on loans than what they offer on deposits. The
difference between what is charged from borrowers and what is paid to depositors is their
main source of income.

20. Why do the farmers in rural areas take loans for?
Ans. Farmers take loans for crop production which involves considerable costs on seeds, fertilizers,
pesticides, water, electricity, repair of equipment, etc.

21. Why are most of the poor households deprived from the formal sector of loans?
Ans. Most of the poor households are deprived from the formal sector of loans because of:
(i) Lack of collateral.
(ii) Their repaying capacity is not good.
(iii) They cannot fulfil the formalities of the formal sector of loans.

22. Compare formal sector loans with informal sector of loans regarding interest only.
Ans. Most of the informal lenders charge a much higher interest on loans than the formal sector loans.

23. What is Cash Reserve Ratio?
Ans. Cash Reserve Ratio is the minimum amount of deposits that the commercial banks have to
hold as reserves with the Central Bank.

v. short answer type Questions
1. Why do informal sectors charge interest rate at their own?
Ans. There is no organisation which supervises the credit activities of lenders in the informal
sector. Therefore, they lend at whatever interest rate they choose. No one stops them from
using unfair means to get their money back.

2. Why do banks and cooperatives need to lend more?
Ans. Banks and cooperative societies need to lend more. This would lead to higher incomes and
many more could then borrow cheaply for a variety of needs. Cheap and affordable credit
is crucial for the country’s development.

3. What prevents the poor from getting bank loans?
Ans. Bank loans require proper documents and collateral. Absence of collateral is one of the
major reasons which prevents the poor from getting bank loans.

E-78 Economics Class X